Functional obsolescence is primarily caused by what issue?

Functional obsolescence refers to a reduction in an asset's utility or value due to outdated features or a design that is no longer considered efficient or desirable. In this context, poor design or an inefficient floor plan can lead to functional obsolescence because it directly impacts how the property is utilized and its overall appeal to potential buyers or tenants. For example, a home with a layout that is not conducive to modern living—such as small, isolated rooms instead of open-concept spaces—can be seen as functionally obsolete, leading to decreased market value.

While normal wear and tear refers to the physical deterioration of a property over time, it is not the primary cause of functional obsolescence. Although poor location and adverse property use can detract from a property's value, they pertain more to external factors that might influence marketability rather than the functional suitability of the design itself. Therefore, poor design or floor plan is the most appropriate choice, as it directly addresses the internal characteristics of the property that contribute to its decreased functionality and value.